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Public Schools Inc.

Produced by: John D. Tulenko

Correspondents
John Merrow
Diana B. Henriques,
The New York Times

ANNOUNCER: Tonight on FRONTLINE: Chris Whittle said he could make public schools better--

CHRIS WHITTLE, CEO, Edison Schools Inc.: The country needs what Edison stands for.

ANNOUNCER: --by running them as a business.

STEVEN WILSON, Kennedy School of Government: Whittle has always been driven by the grand idea.

ANNOUNCER: But 10 years later, what is there to show?

VOICE: I told them we're going to lose money here from day one.

VOICE: Every day, I've been reading something negative about the company.

HELEN GYM, Coalition to Save Philadelphia Schools: Education is not a business.

ANNOUNCER: Tonight, correspondents John Merrow and New York Times reporter Diana Henriques examine the privatization of public schools.

NEWSCASTER: Confusion and uncertainty may be the best way to describe much of the reaction to the new plan announced yesterday by Philadelphia's school reform--

NEWSCASTER: Chaos is what critics say the next school year will be like if--

NEWSCASTER: Edison schools and a handful of other private contractors are taking over some of Philadelphia's worst-performing schools. Negotiations did go down to the wire, with the money reportedly being the primary--

NARRATOR: In one of Philadelphia's poorest neighborhoods, a man from New York City has come to make a multi-million-dollar sale. He's campaigning hard to close the deal.

EDISON REP.: We're here today to give you information, to address concerns that you have because we'd like you to stay and be a part of this school and be a part of the Edison family.

NARRATOR: His employer, Edison Schools, Inc., is engaged in the largest corporate takeover of public schools ever, against the wishes of all the teachers here.

TEACHER: If everything is so great, if everything is so positive, like you're saying, if, you know, everything is so successful, why are we reading over and over again that Edison has failed here and has failed there, and they haven't turned a profit in 10 years? This doesn't make any sense to me.

EDISON REP.: That's a very fair question. First of all, no one is perfect, all right? So I don't want you to think every single one of our schools--

PEGGY SHRIVER, Teacher: I feel like they sidestepped every question. They went around every question, to the point where people forgot what the original question was, and that's why we had to keep asking them the same questions. Everything was a "maybe," "could be" and "they may decide," "it's at your discretion."

NARRATOR: The day did not go as Edison had hoped. In the end, the school salesman was lucky to get out of town with his own shirt.

STEVEN WILSON, Kennedy School of Government: The act of going to a large urban district and offering to take over not one or two but to take over 10 or 20 or 30 schools is politically explosive.

TOM DOYLE, Union President, Local 11201: Are we union here today? Are we union here today?

NARRATOR: Opposition to Edison had been growing for months, led by union leader Tom Doyle.

TOM DOYLE: Of course, our worst fear is that we will lose our jobs, that they will privatize and just get rid of all our members. In order for these companies to make a profit -- and that's what they're in business for, nobody one should kid themselves, they're in business to make profit, especially Edison, because they're a for-profit organization -- they cut corners as much as they can.

HELEN GYM, Coalition to Save Philadelphia Schools: Hiring for-profit companies is not the answer to--

NARRATOR: The anti-Edison coalition included another outspoken critic, community activist Helen Gym.

HELEN GYM: For months, this commission has had the opportunity to sell us on the idea of Edison.

NARRATOR: Gym objects to the whole idea of companies running schools.

HELEN GYM: Education is not a business. At some point -- and it's not that-- you know, it's not that high. At some point, quality of education and the concept of profit will conflict and that quality of public education will suffer.

NARRATOR: The controversy would come to a head on April 17th, 2002, when the state would decide whether to hand over as many as one third of Philadelphia's schools to companies like Edison. From his offices on 5th Avenue in New York City, Edison's founder and CEO, Chris Whittle, watched events unfold in Philadelphia. He saw the opposition to his company as an effort to destroy the whole concept of private management of public schools.

CHRISTOPHER WHITTLE: There's an old saying in certain wars: "Take the leadership out." We are the leader in this world, and there are some who are trying to take us out because if you take us out, you take out this general phenomenon.

NARRATOR: Whittle had created Edison Schools nearly a decade earlier, but it had yet to turn a profit. The Philadelphia takeover was crucial to its financial future and to Whittle's vision of the role private enterprise could play in public education.

CHRISTOPHER WHITTLE: The country needs what Edison stands for. I do not believe in one way to do education in America. I believe that diversity is critical and that competition between many different ways is critical, and that, in fact, one of the big problems of American education is that we have had one way.

NARRATOR: Edison's plan to re-make schools and make money was straightforward: Take the same public dollars districts get, but use economies of scale to it spend more efficiently. What's left over would be profit. It was an idea Wall Street embraced, seeing the potential for a huge new market.

JEFFREY SILBER, Wall Street Analyst: I think the numbers were an excess of $300 billion per year that's spent on K through 12 education in the United States.

NARRATOR: Jeff Silber is a Wall Street analyst specializing in education companies.

JEFFREY SILBER: Now, obviously, when you drill down and say, you know, what percentage can the for-profit industry, companies like Edison, garner, it's going to be a relatively small percentage. But even if you assume 1 percent, that's a $3 billion industry right there. The largest company in the industry, which is Edison, if they take, you know, 20 to 30 percent, that's a billion-dollar-plus company right there alone.

NARRATOR: But Whittle had not been able to make the numbers work. He'd burned through $250 million from investors and his own personal fortune. If he failed to get the Philadelphia contract, Edison Schools might become the last in a lifetime of Whittle's big gambles.

THOMAS TOCH, Nat'l Center on Education and the Economy: Chris Whittle wanted to educate American students better and prove that you could so without spending more money. And in the course of doing that, he could become fabulously rich. He wanted both. He wanted to do well and he wanted to do good, and he was driven by that and he has been his whole life.

NARRATOR: Knoxville, Tennessee. This is where Edison began and where Chris Whittle got his start in business shortly after graduating from college in 1969. His first investor was Tony Spiva.

TONY SPIVA, Early Whittle Investor: Chris Whittle was -- oh, how shall I say? -- the classic idea man, in the sense that ideas just flowed out of him like an artesian well. And as we used to joke, many of them were actually good.

NARRATOR: From this vacant factory on the edge of town, Whittle and some college friends launched a magazine publishing company that targeted an audience others had overlooked, teens and young adults. The venture lost money from the start, and Whittle needed a big advertiser to get out of the red.

TONY SPIVA: Chris did it in his own inimitable way. He went up to the corporate headquarters and found a secretary to the president of Nissan of North America and conned her into getting him 15 minutes to make a presentation to the board of directors. Now, exactly how he did that, I'm not sure, but that was the kind of thing that Chris could, in fact, do. And then he had the temerity to tell these members of the board, "I'm going to leave, and I'll wait out in the office. I'll give you 30 minutes to make a decision, and then I'm back to Knoxville and I'll sell it to somebody else." And in about 15 minutes, the president came out, said, "You've got a deal." It was-- my recollection is it was about 160,000 bucks.

NARRATOR: The company took off, adding staff and attracting investors. It was Esquire that put Whittle on the map. In 1979, he and business partner Phillip Moffitt risked everything to buy the struggling magazine. They moved to New York and together turned it around.

PROMOTIONAL VIDEO: The magazine's credo became "Man at his best."

ED WINTER, Fmr. VP Whittle Communications: It was the time to be with Chris Whittle and Phillip Moffitt because they were clearly getting press as the media whiz kids.

NARRATOR: Ed Winter joined the company in 1984 and was part of Whittle's inner circle.

ED WINTER: They were the anti-establishment, long hair and mustaches, and what they represented for a lot of us was, you know-- for Baby Boomers in the '60s and all of the things we were, you know, about at that time, it was a chance to be in business but the feeling you didn't sell out, that you joined the band.

NARRATOR: With money coming in from Esquire, Whittle could now pursue the lifestyle he'd dreamed of.

TONY SPIVA: Chris always wanted the very best. So when he became a big success, it was not just necessary to have an apartment in New York City, it had to be at the Dakota. It wasn't just to have some paintings hanging on the walls, he had to have, you know, these enormous canvases, works of art purchased at almost certainly mind-boggling prices.

NARRATOR: The magazine business was growing, but Whittle's partnership with Phillip Moffitt had become strained.

TONY SPIVA: Chris was one of these people that in a week's time would have 100 ideas, 60 of which were good, 40 of which were not good. And the role that Philip played was persuading Chris to give up pursuing some of these not good ideas. And for somebody to say "No" was something that Chris didn't-- it didn't sit well with him.

NARRATOR: In 1986, they split. Moffitt took Esquire, Whittle kept the rest and moved the company back to Knoxville.

ED WINTER: The decision was made for it to be called Whittle Communications. I think that was a pretty dramatic turning point of Chris's ambitions, that he wanted his name on the door.

NARRATOR: Whittle decided to expand into television. He identified a captive audience: people waiting in doctors' offices. He would target them with medical news programs and ads for health products. To make it happen on a national scale, he persuaded Don Johnstone of Phillips Electronics to invest $175 million.

DONALD F. JOHNSTONE, Fmr. CEO, Phillips Consumer Electronics: Chris has this unique ability. He had it with his employees, and he had it with the partners, et cetera. And that is that he could take his perceptions, or if you want to call it vision, and he could turn it into reality for you. It's an amazing thing, but I mean, by the time he was through, his perceptions were reality.

NARRATOR: Whittle broke ground on a new headquarters and recruited top-flight talent to Knoxville.

ED WINTER, Fmr. VP Whittle Communications: It was, like, "Look at us. We're ready." You know, "So let's build the White House. We've got the cabinet. Let's build the White House." We had the full ultimate staffing of major personalities. We just built this massive complex. We were no longer the people in the warehouses in Knoxville. The building and the size of that and what it represented was kind of a defining moment.

NARRATOR: In 1989, Whittle went after another captive audience with Channel One, a news program broadcast to schools, paid for by commercial advertising.

ED WINTER: A friend of mine called me, my ex-boss in Dallas, and he went "Commercials in school? Televisions? Are you out of your mind? You just declared war on education."

NARRATOR: School officials in California and New York came out strong against Channel One and got it banned.

BILL HONIG, California State Superintendent: [June 8, 1989] We're not in the commercial business. We can't sell access to kids' minds. It violates our laws. It's not right. And we're not going to allow it to happen.

CHRISTOPHER WHITTLE: Most people said, "Quit right now" and said, "It's never going to make it. You've lost both coasts. Forget it." And I said, "No, there are 48 other states. This is a good idea. We're going forward."

NARRATOR: Whittle's persistence paid off. Eventually, he got Channel One into thousands of classrooms. But in the process, he got tagged as a threat to public schools.

INTERVIEWER: There has been a demonization almost from the Channel One days. How do you answer it?

CHRISTOPHER WHITTLE: My response? "Well, would you like to have your children know where Beijing is," OK, and that introducing the world into America's schools is a good thing. And if the price is a commercial to go with that, now what do you think?

NARRATOR: While fighting for Channel One, Whittle traveled the country, meeting school boards. That experience sparked his biggest idea yet.

ED WINTER: You would have to have been in the bowels of education to go, "You know what? Here's what's wrong here. Nobody's got a model for the next generation of schools." You know, McDonald's allows you a very dependable experience, no matter where you go. And I remember the day he told me, he said, "I think we need to be in the school business." And I went, "You're serious, aren't you." He said, "Yeah."

NARRATOR: Whittle called his new business the Edison Project.

CHRISTOPHER WHITTLE: [National Governors Association, Aug. 14, 1992] We want to develop a design in such a manner that it can impact either directly or indirectly on every child, rich or poor, black or white throughout America.

NARRATOR: Whittle knew he was tainted by Channel One. To sell Edison, he needed to put someone else out front. Whittle looked to Benno Schmidt, the president of Yale University.

BENNO SCHMIDT, Jr., Chairman, Edison Schools Inc.: He called me up -- I was up in New Haven -- and said, "I'd like to come up and take you out to lunch." I said, "Well, I'd"-- you know, "I'd be glad." I had no idea what was on his mind. So we went over to Mory's, and he started the lunch by saying, "I want to convince you to leave Yale to head up the Edison Project." And I said, "Well, you know, some of our mutual friends told me that you really are crazy." And I said, "You really are crazy. You want me to leave Yale to do what?"

NARRATOR: It was national news a year later when Schmidt changed his mind.

PETER JENNINGS, ABC News: Today the president of one of the nation's leading universities has decided to quit his job--

BENNO SCHMIDT, Jr.: I ultimately decided that it would be worth the risk. A big risk, I understood, would be controversial, I understood, a lot of people would think "crazy idea." That I understood. But I thought that the goal was so important and the potential for success was high enough to make the risk worth taking.

STEVE WILSON, Kennedy School of Government: I think Benno's arrival gave the project immediate credibility. Chris Whittle was revered on the Street and in New York for his salesmanship, for his brilliance of his ideas, but Benno, as the president of Yale, brought the project the kind of credibility that was essential as it moved into such an ambitious undertaking.

NARRATOR: In Knoxville, Whittle assembled a team of thinkers. He gave them two years and a $50 million budget to come up with a new design for public schools.

THOMAS TOCH, Nat'l Center on Education and the Economy: He called the so-called core team the "Edison astronauts." This was the-- you know, the Apollo 7, the educational version of Apollo 7.

NARRATOR: Whittle's team proposed an audacious plan. Edison would build its own network of 1,000 brand-new private schools to replace failing public schools.

THOMAS TOCH: It was a mission to create a radically new conception of what American education should be, one that would be stronger and more efficient, at no additional cost. I mean, it was a bold, bold, plan he had.

NARRATOR: Edison's initial plans seemed to dazzle leading education reformers, even staunch supporters of public schools like Ted Sizer.

TED SIZER, Fmr. Dean, Harvard Grad School of Ed.: What excited me at the beginning, in talking with Chris, is I thought the way he was talking, he was going to go back to the beginning. And I listened with considerable astonishment to what he proposed to do and found it intriguing, risk-taking.

NARRATOR: But Sizer told Whittle he wasn't interested in being part of Edison.

TED SIZER: If reform is needed, the answer is not to drown the public sector and replace it with the for-profit sector. I think the danger is in the for-profit sector. But if anyone could pull it off, this quite flamboyant, aggressive, interesting, smart guy would be the one to pull it off.

[www.pbs.org: The debate over privatization]

NARRATOR: Building Edison would be expensive: $2.5 billion. To pay for it, Whittle pushed his other expensive start-ups: Special Reports TV, Medical News Network, Channel One. Whittle told the board that soon, enough money would be coming in to pay for everything.

DONALD F. JOHNSTONE: We had revenues of about $100 million and we had costs of $200 million. We were burning $2 million of cash a week. And Chris kept saying, "We're going to make it. We're going to make it. We're going to make it." And the partners were worried, and it got to the point where we, I guess, almost reached the point of no return.

ED WINTER: It's just this got too big. And our big disagreement was, "We're not going to make it. You're not listening."

CHRISTOPHER WHITTLE: I am absolutely positive that some did warn me and that I ignored the advice. I'm sure-- I can't recall the specific situation, but I bet that is true.

INTERVIEWER: Why would you have done that?

CHRISTOPHER WHITTLE: Because I misjudged the situation and I went, "No, we can do this." And we couldn't.

[company board meeting] Clearly, for those who are going to be departing the company, it is terrible news. It's the most difficult decision I have had to make in my 20 years here, and I deeply regret it.

NARRATOR: Whittle had pushed too hard. He was forced to lay off nearly his entire staff and sell his Knoxville headquarters. All he had left was Edison. Whittle moved the company to New York, and Edison went to Wall Street looking for new investors. Only now, Benno Schmidt was in charge.

BENNO SCHMIDT, Jr., Chairman, Edison Schools Inc.: We needed to develop an entirely new source of financing, and I became convinced -- and I think I was right at that time -- that he really needed to take a back seat in Edison for us to be successful. That was not-- that was not an easy-- and he ultimately agreed to do that. But I'm not going to kid you. That was not easy for him or for me.

CHRISTOPHER WHITTLE: I had no official title. I had no authority. By the way, I owned half the company, but that didn't matter. And was that painful? For sure. And was it an indication of how much I cared, to go through that? I think so.

NARRATOR: Halfway across the country, in Wichita, Kansas, a school district was looking for change. And Edison, kept alive with new venture capital, was looking for a proving ground.

JEAN SCHODORF, Fmr. Pres. Wichita Board of Education: They were up front and friendly and driven. And you could tell that they believed in what they were doing.

NARRATOR: In 1995, school board member Jean Schodorf bought Edison's package, its academic program, books, training and the personnel to run two struggling schools in Wichita. One was Dodge Elementary, where test scores and enrollment had declined.

JEAN SCHODORF: Well, I remember the opening, the grand opening. It was the world-- and it wasn't the international, it was the world opening of the Dodge Edison School in Wichita, Kansas. And it had a red carpet, and all the parents were there and all the New York folks from the Edison company. It was spectacular.

INTERVIEWER: Chris Whittle was here?

DARLENE COOPER, Teacher, Dodge Elementary School: He was here, and he spent a lot of time in my classroom. Be in the corner. You'd look up. There he was. And you'd think-- quiet, you know, just unassuming.

NARRATOR: Whittle was now in the business of managing schools, not building them. His program was a scaled-down version of the visionary ideas developed in Knoxville.

STEVEN WILSON: The ideas were not necessarily innovative. They were simple ideas: a longer school day and school year, tossing aside the agrarian calendar of the past -- after all, an idea from another century -- having foreign language instruction from kindergarten on, having an ambitious program based on research-proven methods that were known to work, as opposed to the current fad of the moment in curriculum and pedagogy.

JEAN SCHODORF: The school changed. The students wore uniforms. And there was a pride there. They learned how to use computers, and parents did, too. People moved into the district, into the area, the school district, so that they could go to Dodge. And it was full. It was bursting at the seams.

NARRATOR: The first two schools were working, and Wichita asked Edison to take over two more. Off to a good start in Kansas, Edison launched a national sales campaign.

PROMOTIONAL VIDEO: Edison would invest over a million dollars of its capital to ensure a strong start.

NARRATOR: By 1998, Edison was running schools in nearly 30 cities. To keep growing, Whittle needed fresh capital. He found it on Wall Street by taking Edison public during the bull market of the late '90s.

JEFFREY SILBER, Wall Street Analyst: It was really more of what we call a "concept stock," and the big comparison was always to health care. If you look at health care 30 years ago, it was very similar, run by a lot of not-for-profit corporations, very heavily regulated. And if you look at some of the for-profit hospital companies that have come in and made fairly significant in roads into the industry, investors have definitely benefited from them. Here was Edison, making the same kind of promise in education.

NARRATOR: Whittle raised $109 million on Wall Street. Edison's stock rose rapidly. Many early investors cashed out, but Whittle kept his money in, strengthening his position within the company. Benno Schmidt remained chairman, but after four years in the background, Chris Whittle reclaimed his titled as CEO.

ED WINTER, Fmr. VP Whittle Communications: He's used to hitting walls. Biggest wall he it was his business with his name on it going out of business. Then a short five or six years later, he's taken, against all odds, a company public. So I go, somehow he must know more than we know because he gets up and walks away.

NARRATOR: Now back in charge, Whittle saw a new opportunity in Baltimore. The state had taken control of three low-performing schools. State takeovers were becoming more common, and Whittle convinced Maryland he could solve Baltimore's problems.

CHRISTOPHER WHITTLE: Here's the way Baltimore works. We are given a fixed number by the state of Maryland. And the state of Maryland determined what they wanted that number to be. And they say, You must run this school for this number, and you must improve the academic results, or we're going to fire you, because the only reason we're there in Maryland is that the state determined that those three schools desperately needed help, and they asked us to take it on.

NARRATOR: Montebello Elementary had been struggling for years, but Edison got off to a fast start. Sarah Horsey had worked for 34 years in Baltimore public schools. She came out of retirement to be principal at Edison's Montebello Elementary.

SARAH HORSEY, Edison Principal: I heard about Edison and their promise of a world-class education for all students. You walk into any of these classrooms, you'll see science, you'll see social studies, you'll see children measuring, you'll see children going to the maps, you'll see children actively involved in the whole learning process.

NARRATOR: With state funds, Edison repainted and made repairs. It also brought in its own software, developed to make individual learning plans for every student.

SARAH HORSEY: We are able to track our children on a monthly basis because it helps us to direct, redirect, modify instruction.

LESLIE REDD, Parent: I was wowed, basically, in looking at the curriculum and the program. And I wanted to know more.

NARRATOR: Leslie Redd and other parents in the neighborhood had opted for private schools over the failing Montebello Elementary. But after Edison came in, she was impressed enough with the changes to move her two children back.

LESLIE REDD: They know what your child needs. The test, the way Edison is set up, where they pre-test the children so they see where their strengths and weaknesses are-- that's very helpful.

NARRATOR: Edison offered classes not always found in many public schools.

INTERVIEWER: How often does a kid at Edison have PE?

IAN MITCHELL, Edison Teacher: It's either two or three times a week that they'll have-- and that goes with all the resources, with art, Spanish, music. And here at Edison, we also have sign language and drama.

NARRATOR: In another room, something unusual for public schools: the explicit teaching of values.

CHRISTOPHER WHITTLE: What we tried to do is pick a character-building program, that had a set of values that 99.99 percent of Americans would go, "I endorse that."

[www.pbs.org: More on the Edison model]

NARRATOR: Edison had complete control at Montebello. It brought in a new staff, hired on one-year contracts. Teachers earned more but worked a longer day and a longer year. There was no union.

INTERVIEWER: If you don't have tenure here, you can be fired tomorrow.

IAN MITCHELL: Could be, and I guess that's a risk I'm willing to take.

NARRATOR: Edison rewards successful principals like Sarah Horsey with cash bonuses of as much as $20,000. Even with all the extras, Whittle says, Montebello makes money for Edison.

CHRISTOPHER WHITTLE: Something we've learned is that the better a school is academically, it tends to be better financially. And it's counterintuitive, but the reason is that if you have good leadership in a school, they tend to be good in multiple ways, meaning they're good recruiters of talent, they're good in terms of raising student achievement, and they're good managers of budgets.

NARRATOR: Chris Whittle is proud of Edison's accomplishments at Montebello. He says its test scores are better than most other Baltimore schools. How many Edison schools are like this one?

HENRY LEVIN, Teachers College, Columbia University: The answer is, we don't really know. There have been no rigorous evaluations of Edison, in contrast to similar public schools with similar student populations.

NARRATOR: Economist Henry Levin has been tracking Edison's progress for nearly a decade. He believes that, just to survive, private companies must show superior results.

HENRY LEVIN: The stakes are higher for Edison. And not just Edison, but really, I'm talking about the industry. The ability of these educational management organizations to expand their attractiveness depends very heavily on strong evidence that they can outperform similar public schools with similar populations. And the survival of existing public schools doesn't require that they outperform the for-profit firms.

NARRATOR: Whittle was succeeding in Baltimore and elsewhere, but he was still under pressure. Edison needed to grow -- and grow quickly -- both to satisfy his investors and to fulfill his own vision.

STEVEN WILSON: Whittle has always been a man that has been driven by the grand idea and wanted very much to build a company quickly to scale, that would incorporate hundreds of thousands of students receiving the Edison education, that would have a billion dollars in revenues. And to get there quickly, on a timeframe that is compatible with pressures from investors -- because that's a big driver -- I think it was necessary to go after large school districts.

NARRATOR: Whittle saw just that kind of opportunity in Chester, Pennsylvania, a poor, sprawling city on the outskirts of Philadelphia.

THOMAS PERSING, State School Control Board: Chester has the lowest scores in Pennsylvania. We have one of the highest crime rates. We have the highest unemployment rate, the highest number of unwed mothers. It's for all practical purposes, probably the poorest school district in Pennsylvania.

NARRATOR: Thom Persing, a retired Marine colonel, was brought in to run the schools in Chester after the state took over the district in 1994. He would later negotiate with Chris Whittle to turn over management to Edison.

THOMAS PERSING: He had created a very positive image of anything they did, almost like it-- there's nothing that they couldn't do and do well. And I believed that he believed that. So that was one of my first impressions, saying, "Here is a person that seems to have unlimited resources and is willing to spend those unlimited resources on, frankly, a destitute school district."

NARRATOR: In 2001, Edison signed a five-year $225 million contract to run the schools in Chester. To get its operation off the ground, Edison brought in Juan Baughn and made him executive in charge of Chester.

JUAN R. BAUGHN, Edison VP: Truckloads and truckloads of curriculum materials and supplies came into Chester. Teachers came out with cameras to see. I mean, it was like Christmas in August here. It really was.

NARRATOR: But in negotiating with the district and the teachers union, Edison compromised its model. There would be no longer school year, the union would stay in place, and most importantly, Edison could not hire or fire teachers.

INTERVIEWER: Why did you compromise your model?

CHRISTOPHER WHITTLE: Because there are going to be situations where you have these two choices: that you can't do anything, or that you can do something somewhat different than what you've been doing.

INTERVIEWER: So you wanted the contract, so you said, "OK"?

CHRISTOPHER WHITTLE: Yeah.

NARRATOR: Edison did recruit new principals. Paul Loper came from Delaware to run Wetherill Elementary. Chester was not what he expected.

PAUL LOPER, Edison Principal: We've heard reports of Edison schools being developed in other areas and how warm and friendly, you know, people were, how receptive. "Oh, great. Come in. We can work together." That isn't always the case. You know, you have-- an invading force has friendly beaches or difficult beaches, where there's great resistance.

INTERVIEWER: And here?

PAUL LOPER: And Chester would be one of those beaches that's well mined and dangerous.

JUAN R. BAUGHN: It's hard to put into words, but it was almost like there were folks trying to catch us wrong versus trying to help us do right. So it was like, "I gotcha." And things that they could have said to us where we could have avoided the "I gotcha," they wouldn't say it. And then when we made a mistake, they'd say, "See? We gotcha."

BOB BROWN, Teachers Union Official: The school district's run by people from the outside, so the local people have been disenfranchised. And I think when you disenfranchise people from their school, they lose interest in it.

NARRATOR: Bob Brown heads the local teachers union. He says he went along with the Edison takeover at the beginning but soon soured on the relationship.

BOB BROWN: One of the reasons Edison can't tell you it didn't work is because of the unions. They basically got what they needed to implement their program. Our people showed up and worked under these conditions. So it's certainly not us that caused the problem.

NARRATOR: Teachers in Chester told a different story.

INTERVIEWER: Tell me about the union's position vis-a-vis Edison.

LESLIE ALDERFER, Teacher, Wetherill Elementary: I personally think they were trying to sabotage them from the beginning. You know, Don't cooperate. They've been instructing us to go along with their views. What's in the contract, what's not in the contract-- everything's all about the contract. If my contract says that I can leave at 3:30, that's when I leave. Don't stay an extra minute longer. If my contract says I don't need to be here for open house, which was from 6:00 to 7:15 last night, don't go.

INTERVIEWER: They're saying that?

LESLIE ALDERFER: Quietly. Or not so quietly.

INTERVIEWER: So there are people who want Edison to fail? That's what you're saying.

GLENDA BRAKMAN, Teacher, Wetherill Elementary: I don't know that they-- I really don't know. I never-- I can speak about our school. I don't think anybody wants to see them-- nobody really wanted them to come. Most of the teachers would not be sad if they left. I'll just put it like that. They wouldn't be sad if they left.

INTERVIEWER: Do you want them to stay?

BOB BROWN: No, we've started a campaign asking the control board to sever their relationship with Edison. We think one year is enough and that, you know, there are other things the school district and the employees can do to help improve the school district without Edison.

NARRATOR: Inside classrooms, an embattled Edison struggled.

THOMAS PERSING, State School Control Board: Academically, I think they did fair, compared to what I expected them to be. They had growing pains. They had principals here and assistant principals who did not understand the community, who were starting from scratch and cold. And they lost four or five of their principals here the first year.

NARRATOR: Edison was also losing money. During its first year, it invested $16 million in Chester schools. Chester paid Edison only $400,000.

CHRISTOPHER WHITTLE: We knew we were taking risk in Chester, and there were reasons we were prepared to do it that we thought were strategically sound. Example-- it represented a new line of business for us, which was essentially a state takeover of an entire district. And we said we got to learn about those. The only way you really learn is to go do one. And we went, "This is something we're prepared to take risk on."

THOMAS PERSING: He really felt that they had the resources, that they could do it, and it would be a very fine marketing chip if he could make it successful and show the entire nation that this was going to be a real successful endeavor in Chester. It would be a springboard for countless, perhaps hundreds of thousands of more students. It would be a ticket to urban America.

NARRATOR: Edison came here with high hopes. But facing huge losses, it asked for an additional $4 million a year, half from the state, half from Chester. Chester said it could not afford it. It was all put to a vote at a public meeting in November, 2002. Edison's team watched closely; as teachers, parents and union officials debated its future in the district.

TEACHER: [school board meeting] What do you have to offer that will equal or surpass the excellent education program that Edison has already given them?

NARRATOR: Fearful that Edison would pull out mid-year, the board reluctantly agreed to the new terms. With more public money, Edison was alive again in Chester.

INTERVIEWER: Do you think you can make money in Chester?

CHRISTOPHER WHITTLE: I think we can keep our nose above water in Chester and try to do what we set out to do, in terms of the educational side.

INTERVIEWER: So you don't necessarily say, "Yes, we will someday make money in Chester"?

CHRISTOPHER WHITTLE: I'm not sure we will. There's a difference between hemorrhaging and struggling by. And I think struggling by is likely where we will be.

[www.pbs.org: Read Whittle's Interview]

NARRATOR: There were signs of trouble elsewhere. Back in Wichita, two of the four Edison schools were struggling.

JEAN SCHODORF, Fmr. Pres. Wichita Board of Education: There was distrust. There were complaints from the community, and it just wasn't running the way the other schools were.

INTERVIEWER: What was wrong with it?

JEAN SCHODORF: Lots of discipline problems.

WINSTON BROOKS, Supt., Wichita Public Schools.: We saw declining enrollments. It was a school at one time that had nearly-- Ingalls, at least, had nearly 700 students in it, and it was losing about 100 students a year. Test performance was awful.

NARRATOR: By now, Wichita had a new superintendent, Winston Brooks.

INTERVIEWER: Was Edison aware that the school was having problems, that teachers were leaving, administrators leaving, families taking their children out?

WINSTON BROOKS: Definitely.

INTERVIEWER: How did Edison respond?

WINSTON BROOKS: Not very well. In fact, I think they were non-responsive.

JEAN SCHODORF: It just kept getting worse and worse and worse. And the company would say, "We're going to solve it, we're going to work on it," and then didn't. And then we had this problem, and then we would read or hear that the company'd been trying to recruit other districts. And that's when we began thinking that, you know, there was a money problem and that the company was really interested in getting new districts, getting the next million, and not taking care of their own.

NARRATOR: Edison stands by its work in Wichita, but the board voted to take back control of the two troubled schools. The company still had two schools here, among the first Edison schools in the country. But soon they, too, would come into question.

NEWSCASTER: Tonight, the Wichita Board of Education will vote on whether to cancel its contract with Edison, which currently operates two schools--

NARRATOR: Edison executive Chris Cerf came to plead the company's case.

CHRIS CERF: You cannot go into Dodge and Jardine -- you just can't -- and conclude that this has been anything other than a smashing, extraordinary, collaborative success.

NARRATOR: Then it was time to vote.

BOARD SECRETARY: The recommended action [unintelligible] is to recommend that the Board of Education terminate the contract with Edison Project effective June the 30th of 2003.

BOARD CHAIRMAN: Cast your votes. Motion passes 6-1.

INTERVIEWER: Was Edison failing in the two schools that you just terminated?

WINSTON BROOKS: No, I don't think they were failing in the two schools we just terminated. This most recent decision was basically made on the fact that we think we can do it cheaper and we can do it just as well, if not better. The average cost that we gave them included K through 12. It takes a lot more money to educate a high school youngster than it does to educate an elementary youngster. I think what they brought to us seven years ago was a concept. They brought curriculum programs to us. You know, we have learned some things from Edison. The competition was healthy. in my opinion. I think they've ran their course.

CHRISTOPHER WHITTLE: [company meeting] Do people understand that they are hitchhiking off of systems we've developed actually for our schools?

INTERVIEWER: What's your reaction to someone saying, "Well, let's just do Edison, but let's not pay Edison"?

CHRISTOPHER WHITTLE: If you say, "We just want to try this in a copycat way, I think you can do that. And by the way, I think you can improve the school by doing it. Do I think, over time, the results are going to be the same? No, I don't. You're fired after you've done a great job, and you just go-- I had one investor call me, and he said, "Chris, I was with you all along until you were fired in a city where you did great work." And I just went, "If that can happen, then what's the future?"

NARRATOR: Wall Street was having second thoughts about Edison. During the bull market of the late '90s, the company's growth had driven its stock price up. But then the bubble burst.

STEVEN WILSON: What people wanted were solid companies that had current earnings and the prospect for still greater earnings in the very short term. Edison was none of those things.

NARRATOR: Chris Whittle needed a lifeline. He saw one in Philadelphia, the fifth largest school system in the nation. The state had seized control of the nearly bankrupt district, and the Republican governor turned to Edison.

BENNO SCHMIDT, Jr., Chairman, Edison Schools Inc.: If a powerful and highly respected governor of a major state comes to us and says, "I have a school system that is a shambles, and I want you to help us fix it," we are mission-driven and we are not inclined to say no, even if we think, "Gee, this is going to be-- in the politics of public education, this is going to be a major, major struggle."

NARRATOR: The prospect of the largest experiment in school privatization excited Wall Street.

JEFFREY SILBER, Wall Street Analyst: The reaction was significantly positive. When, all of a sudden, you heard that the state was taking over one of the largest school districts in the country and planning on outsourcing as many as 60 schools, including 45 to what was known as the lead provider, where everybody realized that, you know, Edison was probably the only company of size being able to fill that role, the expectations on Wall Street shot up dramatically.

NARRATOR: But in Philadelphia, the opposition was intense.

NEWSCASTER: The battle over bringing in a private company to take over Philadelphia's public schools generated more heat today at City Hall--

NARRATOR: The Edison deal played right into Pennsylvania politics. The city's Democratic mayor saw the move as just another power play by the Republican governor. The powerful labor unions saw Edison as a direct threat to their influence and their jobs.

PROTESTER: We can't allow this to happen! And if they attempt to do it, let's bring the system to a halt! Let's stop it!

NARRATOR: The opposition kept growing, even coming to the company's New York headquarters.

PROTESTER: I want [unintelligible] all the corporate vultures on the 11th floor to know that there are hundreds of people down here today because we are angry!

NARRATOR: They demanded a meeting with management.

PROTESTER: You go to districts and you prey upon the fears of parents that their schools are failing. You prey upon the lack of courage of our political leaders. You have no place in public education, no place in Philadelphia--

EDISON REPRESENTATIVE: You don't sound open at all. I just want to get clear. You won't move.

PROTESTER: The people of Philadelphia, you will find out, they are not going to accept this now or any time in the future, and they're going to fight you every step of the way.

JEFFREY SILBER: This has been an ongoing saga. And every day or every week, you're reading something negative about the company. The unions may not be supporting them. Some local politician may be against the company. You know, obviously, when investors read that on a daily basis, it gives them some concerns. Investors hate negative surprises. There always seem to be a piece of negative news coming out on the company.

NARRATOR: Whittle knew the protests could damage his big deal in Philadelphia, but he remained confident Edison would win a contract to run 45 schools, a deal that could help make Edison profitable for the first time. On April 17th, 2002, the day the state control board would decide on the Edison deal, students blocked the entrance to the Board of Education building in Philadelphia. After a tense stand-off with police that lasted for hours, the meeting was moved across town. The state board, under intense political pressure, did approve by a 3-to-2 vote a contract for Edison. But it was not for the 45 schools Whittle expected. He only got 20.

CHRISTOPHER WHITTLE: We were severely disappointed and not forewarned, and so disappointment, embarrassment-- you pick it -- just about anything you could assign would fit.

NARRATOR: The next day, analyst Jeff Silber downgraded the stock.

JEFFREY SILBER: The expectations had been that the company was going to get 45 schools. Then the first news came out Edison was only getting 20. Well, 20 versus 45 is a huge shortfall.

NARRATOR: Other analysts downgraded the stock, triggering a sell-off. In a few short weeks, Edison's stock tumbled from $14 a share to $1. By the time the slide finally ended, shares that once traded for as much as $38 were selling for 14 cents.

CHRISTOPHER WHITTLE: A decade of work kind of went up in smoke. For me to sit here and say that the loss of my entire net worth was not bothersome? I think it was bothersome. Yeah. It hurt.

NARRATOR: Edison calls the stock collapse an overreaction. It says that running schools can be profitable. But Edison was still losing money, even though it had grown rapidly and claimed to be running 130 schools. Some say that Edison's business model has always had a fatal flaw.

HENRY LEVIN, Teachers College, Columbia University: Their expectation of making profits by building on economies of scale is inconsistent with what we know about the production of education. The problem is that when you establish new schools, you have large variable costs. That is, you still have to hire teachers, you have to hire a principal, you have to get materials, facilities, all kinds of things. And historically, when you look at the economic research on schools, there isn't a lot of evidence of significant economies of scale for that reason, that every time you get more students, more schools, you have to pay for a lot of other new things, as well-- high variable costs, so to speak.

TED SIZER, Fmr. Dean, Harvard Grad School of Ed.: I'm no businessman, but I've run schools. And the only way you're going to make money on schools is if you have one system, one text, one routine, one school design. Now, I happen to believe that no two schools that I most admire ever plan alike. And the notion of a cookie-cutter plan -- exactly the same mathematics curriculum for exactly the same 5th grade in every school from Hawaii to Maine -- that's nonsense.

NARRATOR: In the months since the stock collapse, Whittle has been meeting with investors. He's put aside his dream of 1,000 schools and has focused instead on cutting back.

CHRISTOPHER WHITTLE: [investors meeting] My assignment is to talk just a little bit about the future."

STEVE WILSON: He has to be able to make some very unpleasant choices. And those come in two kinds. One is about schools. It's about shedding schools that aren't willing to pay the bill for the services. And it's about letting go of probably some very valuable people who he can't afford to retain, and about making other tough choices to reduce corporate overhead. But I see Edison making those choices. And Chris may not be leading the charge, but he's not obstructing it, either.

NARRATOR: Despite a promise from Whittle to show a profit, the stock failed to recover. Now Edison's run on Wall Street is over. Private investors, led by Whittle, plan to buy back the company's stock, removing it from the public market that had poured hundreds of millions of dollars into Edison. Whatever comes next, it seems unlikely that Whittle and Edison will be a major force in the reform of public education.

INTERVIEWER: Is Chris Whittle a symbol?

TED SIZER: No, I don't think he's a symbol. If he's a symbol-- if you force me into using that, he's a symbol for the paralysis of the public sector. It should be easy to compete with somebody who has to pay a profit, who has to get a profit for investors. I mean that-- Hey, you know, that's one arm tied behind his back. He has to spend X percent of his money to investors, while we in the public sector don't have to do that. But the public sector is, in many cases, paralyzed.

NARRATOR: Chris Whittle thought he could save public schools from paralysis and in the process become rich. It hasn't happened. Fierce opposition, flaws in his own plan and perhaps his own hubris have combined to make Edison, at least for now, a fragile company with a fading dream.

INTERVIEWER: You began with this dream of transforming American education. You still think you can do it?

CHRISTOPHER WHITTLE: Yeah, I think-- can we be a very important, not the only, but a very important force in helping public schools be better? I absolutely think that. And the day that I don't think that is the day I'll depart.

PUBLIC SCHOOLS INC.

PRODUCED BY
JOHN D. TULENKO

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Diana B. Henriques,
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A Merrow Report produced by Learning Matters in Association with WGBH/Frontline and The New York Times

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ANNOUNCER: This report continues on our Web site, where you'll find a conversation with correspondents Diana Henriques and John Merrow about Edison's prospects and its impact, a closer look at Edison's track record and at the experiences of teachers and administrators in Edison schools, more on the public school privatization debate and analysis of what's at stake, plus FRONTLINE's extended interviews with Chris Whittle, Benno Schmidt and others, and find out on the Web site if this program will be shown again on your PBS station. Then join the discussion at pbs.org.

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